Kenneth Blackwell: Banking solution, no solution

If you like unnecessarily long lines, surly clerks, and terrible service, then you’re probably going to love the latest idea to come from the fevered minds of some of the most radical Democrats in Congress.

Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez, both of whom identify with the extremist “democratic-socialist” wing of the Democratic Party, have teamed up on a proposal to “help” lower-income Americans by authorizing the United States Postal Service (USPS) to offer banking services such as checking and savings accounts.

Wonderful. Just as email and private delivery companies were finally liberating us from our longstanding dependence on that inept and inefficient government-mandated monopoly, the Democrats are trying to create brand new reasons to subject Americans to the ordeal of interacting with the postal service.

The ostensible reason for turning the USPS into a quasi-bank is that many rural and low-income areas are underserved by traditional banks. Expanding access to basic financial services such as checking accounts is certainly a worthy goal, but it’s difficult to imagine a worse way to achieve it — encouraging people to deposit their savings with the DMV might do the trick, but that’s not under the federal government’s purview, so Sanders and AOC had to settle for the next most-aggravating option.

There’s another way to solve the problem of “banking deserts,” though, and it wouldn’t require anyone to suffer the condescension of puffed-up pseudo-bureaucrats in blue shorts. All we’d have to do is reform a well-intentioned but misguided 1977 law.

The Community Reinvestment Act (CRA) was designed to prevent banks from discriminating against minorities and low-income customers, but it actually created perverse incentives for banks to avoid certain communities entirely because it evaluated compliance with these new banking requirements based on the locations of physical branches.

The CRA mandates that each branch of a bank must approve loans for low-income applicants at the same rate that it approves loans for its wealthier customers. In areas with a mix of high- and low-income residents, this has led banks to increase lending to low- and moderate-income borrowers, as it was intended to do. In areas without enough high-income residents to offset the added risk of lending to lower-income borrowers, though, the CRA merely removes the incentive for banks to offer any kind of financial services to those communities at all.

That’s always been a major flaw of the CRA, but the problem is becoming more urgent as improvements in technology such as online banking make it increasingly unnecessary for most customers to visit a brick-and-mortar bank.

The CRA deprives many low-income Americans of the ability to access professional banking services, and now the radical Democrats want to make up for it by leaving those same people at the mercy of an organization that struggles just to get Pottery Barn catalogs into the hands of the people tasked with throwing them in the garbage.

As if asking people to depend on the notoriously unreliable USPS to handle their money wasn’t enough, Sanders and AOC also want to impose an arbitrary cap on the interest rates lenders can charge for consumer loans, which will actually result in making it harder for people with bad credit scores to access credit cards.

According to these two financial wizards, the appropriate interest rate to charge on short-term loans is 15 percent — charging 15.1 percent would be downright “immoral.”

What about making it impossible for people with weak credit scores or low incomes to qualify for credit cards altogether? Wouldn’t that be “immoral,” too? Because that’s exactly what would happen if this disastrous idea were ever to be enacted.

Low-income individuals arguably have the greatest potential to benefit from credit cards, and if used responsibly, the interest rates on those cards are completely irrelevant. If a person merely uses a credit card to tide them over for two or three days until payday, then promptly pays off the balance, the interest rate they actually pay will be a whopping 0.0 percent.

Of course, that’s not always how things pan out in the real world. Some people pay their balance down slowly; others rack up more debt than they can afford and eventually default, leaving the lender on the hook for their reckless spending. That’s precisely why high-risk borrowers have higher interest rates.

If this foolish proposal were ever enacted, lenders would simply stop offering credit cards to anyone they don’t expect to be a profitable risk at a 15 percent interest rate, just as they shuttered bank branches in low-income areas when the CRA tried to force them to make unprofitable loans starting in 1977.

So what happens to the single parent whose gas tank and bank account both get close to “E” on the 13th of the month? They’d be SOL — supremely outta luck — if Bernie and AOC had their way.

At least they’d be able to take comfort in the knowledge that the “billionayuhs” wouldn’t be making any “immoral” profits from helping them out. And they’d have plenty of time to dwell on it while waiting 45 minutes to check their bank balance at the post office and praying there’s enough left in their postal bank account to pay for dinner.

KENNETH BLACKWELL

Guest Column

Kenneth Blackwell served as the mayor of Cincinnati, Ohio, the Ohio State Treasurer, and Ohio Secretary of State. He currently serves on the board of directors for Club for Growth and National Taxpayers Union.

Kenneth Blackwell served as the mayor of Cincinnati, Ohio, the Ohio State Treasurer, and Ohio Secretary of State. He currently serves on the board of directors for Club for Growth and National Taxpayers Union.